CSR 2010: Tax Credit cuts

A number of complex Tax Credit changes have been announced in today’s CSR. We will be undertaking more comprehensive analysis of their impacts over the next few hours and days. But for now the key point is that despite new increases in the value of Child Tax Credit (worth £30 a year in 2011/12 and £50 a year in 2012/13 – at total cost to the Treasury of £560 million by 2014/15) there have been cuts worth £1.4 billion in Tax Credit payments for families more widely.

These include a 10% cut in the childcare costs that working families can expect be covered by Tax Credits, a freeze in the annual value of several Tax Credit elements and a requirement that couple households with children are engaged in 24 hours or work (compared to the current 16) before qualifying for Working Tax Credits (and consequently any childcare support at all) at all.

Update: Budget 2006 increased the proportion of childcare costs that Tax Credits could meet from 70% to 80%. Today’s CSR has reversed that move. This means that families with weekly childcare costs of £300 (the maximum payable for a low-income family with 2 children) will lose £30 a week. The CSR’s equalities impact assessment states that “The reduction in support through the childcare element of tax credits…will particularly affect women in lone parent households. “

Written by Nicola Smith

I’m Head of the Economic and Social Affairs Department at the TUC. I also represent the TUC on the Social Security Advisory Committee. My posts may therefore range from the environment to the welfare state via macro-economic policy but will inevit…

Im a single mum working 17 1/2 hours a week as part of a job share. I cannot find any information as to whether there is a different lower working hour limit for single parents. In her report Nicola Smith states that ‘households’ with children have to work at least 24 hours in total, is this based on a couple or do I qualify under these circumstances? If so, how does the government expect single parents to remain employed. In my current situation it will mean that I shall lose over £6,000 per annum which is very worrying

You will not be affected by the hours requirement (for as long as you remain a single parent) – I have now clarified the post. From the CSR documentation it appears to only be couple households with children who are facing the increased hours threshold. You will however feel the impact of the cut in eligible costs for childcare and in the freeze in the WTC rate.

The wording from the CSR is as follows: “changing the eligibility rules so that couples with children must work 24 hours a week between them, with one partner working at least 16 hours a week in order to qualify for the WTC, saving £390 million a year by 2014-15.” It sounds to me as if one partner will be required to work 24 hours with the other not working, or one partner will be required to work 16 hours with the other working at least 8 to make up the difference.

Does anyone know if the 24 hour rule will apply if the working person qualifies as a disabled person under tax credit rules. This allows a person to claim if they are working 16 hrs or more.
Surely, the aim is to allow a disabled person who wants to work the flexibility of the p/t hours to fit in with their personal needs as well. Pushing up this threshold could be really difficult for disabled people who want to work but cannot manage loads of hours?
Does anyone have an answer to this? Thanks

Thanks Nicola. If I have read the document correctly, it is not due to come in until 2012-13, is that correct?
I was meaning the disabled person as part of a couple with children. I will try the helpline but in the past it has been long waits and advisors with differing knowledge…..

Hi Mark, yes that’s right this measure will not be introduced until 2012/13. I am afraid I have a little information as you on whether disabled people who are in a couple with children will or will not be affected. I also know that the helpline has had its problems. If I find out any more on the specific impacts this measure may have for disabled people I will publish it here.

I have now phoned the helpline. I have been informed that ‘no information is available’ on whether or not the change will apply to a disabled parent in a couple. The helpline were also unable to tell me when information was likely to become available and all they could advise was that you keep checking the HMRC website.

In my view this is far from satisfactory, given that there will be thousands of Tax Credit claimants across the country currently seeking more information on how these changes will affect them. All the best with finding out more.

You have made me cry with relief reading this. I am single mother of 2 who works 18 hrs week for NHS and was worried my working tax credit would be stopped unless I worked for 24 hours. I hope you are right!

I work 18 3/4 hours a week but I am disabled and can not work anymore than them hours. I get working tax credits to top up my pay. I do not have any children and still live with my mum and dad. Would I be affected by the tax cuts?
Thank you
Joanne

Ray – this specific change should not affect your tax credit. However, you may be affected by wider changes which will include a cut in the amount of childcare support that will be provided. For advice on your specific circumstances the best thing to do is to call the Tax Credit advice line.

Joanne – the change to the working hours entitlement only applies to couples with children, so it should not affect you. You will however be affected by changes including the freeze in the level of the basic element of Working Tax Credit (meaning that it will not increase in line with inflation for 3 years). Again, if you have specific worries it’s best to call the Tax Credit advice line at HMRC

I work 18 hours a week and have a child who has just started school.
My partner has mental health problems and was registered as disabled because of this ill-health.
I now wonder if we will lose our WTC because my partner is currently unable to work and would be considered unemployable by most employers.
Thank you

You raise the same point as Mark above, and unfortunately as yet I haven’t been able to find out what the answer is. This is obviously a very concerning issue for families like yours and one that I feel the Government needs to provide details on as soon as possible. If you are able to find out more please let me know. Likewise if I hear more details I will post them here.

Lauren, the short answer is that you will still recieve Tax Credits but there might be some reductions in your award. This will depend on the different elements that your award is made up of. For further advice I would suggest that you call the Tax Credits helpline – contact details are in comments above – or Gingerbread http://www.gingerbread.org.uk/ who have a helpline specifically for single parents.

I am part of a couple and I work 22.5 hours for the NHS we have 2 small children and my partner is not working. Do I understand it correctly that I will lose my working familly tax credits completely does this mean we will go back on to benefits and all my wages apart from £5.00 will be taken off of those benefits? 22.5 hours is 3 full working days so i need to find an extra 1.5 hours somehow. If my partner gets a job how many hours will he need to work in order for us to qualify for childcare to be paid? at the moment I believe we both have to be working at least 16 hours to get childcare paid. When are these changes comming in? Are the new rules for a couple definetly 24 hours between then as the transcript to the speach is worded diferently to what George Osborne said?

The first thing to say is that these changes will not be introduced until 2012/13, so you have some time to plan.

My understanding is that you and your partner will have to work 24 hours between you, with one of you working at least 16 hours. So, your partner would have to work 1.5 hours a week. The CSR document reads: “changing the eligibility rules so that couples with children must work 24 hours a
week between them, with one partner working at least 16 hours a week in order
to qualify for the WTC, saving £390 million a year by 2014-15″.

No details are yet available on this other than those included in the CSR docment, so I advise contacting the Tax Credits helpline for advice on your specific circumstances.

To qualify for help with childcare costs, both members of a couple have to be working at least 16 hours a week unless one member of the couple is incapacitated, in hospital or in prison. So it sounds as if your partner would have to start working 16 hours a week.

hi nicola,
i’m due to go back to work in feb 2011 when my maternity leave finishes, i’m planning on working 16 hours and my partner works full time. would i have to increase my hours to 24 to still qualify for working tax credit, or would my partners hours be taken into account?
Thanks

The new rule will only apply from 2012/13, and in addition it appears to relate to the total number of hours a household is working. In your case it sounds as if you and your partner are working well in excess of 24 hours between you so will not be affected.

You may however be affected by the cut in the amount of childcare tax credit that families are entitled to and by the freeze in the value of working tax credit and the 30 hour element of tax credits. From April 2011, the baby element will be subtracted from your tax credit award (the Government have abolished the baby element) so that will be another cut. The rate at which tax credits are withdrawn is rising (from 39 per cent to 41 per cent) and the second income threshold will fall. On the other hand there will also be an increase in the child element, which will offset some of your losses. My advice would be to check your tax credit award very carefully in April as it may go down considerably between March and April.

hi i work 16 hours as part of a couple my partner and i both will be attending university next year will this be taken into account as we will be both full time and my partner stays at home while i work evenings and weekends

Your entitlement will be based on the number of hours you work at the point at which you claim, not on how many you are working now. However I am unsure how attending university impacts on your Tax Credit entitlements. I think the best thing is to call the tax credit helpline http://www.direct.gov.uk/en/Dl1/Directories/DG_10011368

My husband currently works 48 hours a week and I am a stay at home mother of four children. When the tax credit changes come into effect will I need to seek work for us to continue getting tax credits?

Diane, the new hours rules will only affect couples currently working 16 hours between them, who will be required to work 24 hours between them. Although you will see a drop in the value of your award (because of other changes that are outlined above on this blog) your award will not depend on you moving into work.

[…] This will cost a low paid worker with two children up to £30 per week, or rather more than three times as much as the maximum impact of the abolition of the 10p tax rate (which was up to £4.46 per week). […]

Hi, please advise I am working 18.5 hours a week and my wife not working, would we need to work 5.5 hours more to qualify for tax xredits? also if I increase my hours to 24 hrs will my tax credits go down as I am working more hours and obviously getting more money? also will my wife need to work providing I work 24 hrs?